Is your money doing one of two things: napping in bank deposits that have barely kept pace with after-tax inflation, or chasing the latest promise of outperformance – AI stocks, derivatives or crypto?
According to RBI data, Indian households still hold 43% of their financial assets in bank deposits. At the other end are the risk chasers. Despite nine out of 10 traders losing money, SEBI data shows the average daily traded value in the equity derivatives segment recorded almost ₹Rs 2.63 lakh crore in FY25, more than double ₹1.20 lakh crore in cash market. Retail investors account for about 35% of the derivatives volume.
Nothing creates extreme wealth. Bank deposits preserve nominal capital but often lose purchasing power after taxes and inflation. Chasing high returns usually means taking disproportionate risk. The middle point of long-term investing is: taking only as much risk as is necessary for your goals.
According to Jinay Salva, founder of Mumbai-based financial services firm Indigenous Investors, “The average investor does not understand the nuances of the capital market, so fear is always there. The easiest way to overcome fear is to buy from the one that has performed best in the recent past. Our mind applies this to the future as well and it seems to be the safest option.”
The objective is not to maximize returns, but to take enough risk to meet long-term goals without taking risks that could derail them.
balance comes from purpose
investment ₹A diversified, moderate-risk portfolio can grow up to $10,000 every month ₹Rs 1 crore in approximately 21 years at an estimated annual return of 12%. Continue for next 19 years and the monthly investment will become the same ₹9.8 crores. It’s not extraordinary annual returns, but compounding that builds wealth. Also, 12% is not an aggressive assumption – the Nifty 50 has given annual rolling returns of around 11-13% over a 10-year period during the last five years.
Investing starts with defining the goal and its time frame: child’s higher education in five years, retirement in 20 years or capital for business in 10 years. Once the destination and time frame are clear, the investment strategy is adopted.
time horizon
The time frame determines the risk. The money required within two to three years is held in capital-preservation assets such as fixed deposits, liquid funds, short-term debt funds or arbitrage funds. Goals three to seven years out can combine fixed income with equities. For goals beyond seven to eight years, growth assets held with a buy and hold approach deserve the largest allocation.
Salva says, “When we talk to clients, we don’t have very structured conversations around goals. Rather we try to talk to them about milestones in life and what are the things that matter to them. Then investment plans are structured around those milestones. It’s like a lot of creative storytelling rather than delineating a process or preaching the right approach.”
Risk Capacity vs Risk Tolerance
Knowing that equities are volatile is not the same as living amidst volatility. During the global financial crisis of 2008, domestic equity markets declined by up to 60%. Were you able to stay invested through it? This is risk tolerance.
Risk appetite is different. If you have a steady income, an appropriately sized emergency fund, and adequate life and health insurance, your finances can withstand market downturns. Whether your emotions can be capable or not is another matter. Investors with lower risk tolerance may be better served by a lower allocation to equities.
stick to allocation
Asset allocation simply matches investment goals. Money for a destination wedding two years later is largely covered by fixed income. Retirement 15-20 years away primarily concerns growth assets. Different goals require different mixes of assets.
According to Sonesh Dedhia, CEO and Founder, Manek Financial, a SEBI-registered investment advisor, “There are many new and alternative investment options today, at times not being present across the spectrum makes clients feel neglected. But many of these add too much risk to the portfolio, thus, the allocation is automatically limited. As a result, there is no significant impact on the overall portfolio returns. Why complicate it and increase the risk when the overall portfolio return does not yield much benefit?”
The allotment also requires maintenance. Rebalancing occurs when an asset class exceeds its target weighting significantly or when a financial target approaches. In 2025, gold prices in India rose nearly 70%, while the Nifty 50 returned nearly 10%. A portfolio that started the year with 10-15% gold may end with an excess weighting. Rebalancing means reducing better performing assets and adding less performing assets, keeping the portfolio aligned with your target mix rather than sentiment.
The second trigger is proximity. Equity earmarked for a long-term goal should be gradually shifted to stable-return assets 12-18 months before the money is needed. You don’t want a 2008-style downturn in a year when you need money.
“Having a structured allocation is part of our philosophy and helps us and our investors maintain fairness. Clients who started with us in 2020 and allocated gold as part of an overall allocation strategy, thus, were able to build an initial hedge and their overall portfolio returns reflect that,” says Dedhia.
Once the allocation is determined, the choice of products becomes straightforward: deposits or debt funds for stability, equities for growth, and gold, international investments and diversification options in the form of portfolio expansion.
discipline over enthusiasm
Only the depositor is continuously losing his purchasing power due to inflation. The chaser of returns loses to the odds: According to SEBI’s own estimates, nine out of 10 equity derivatives traders lose money.
Constant market noise and social media increase fear and greed, encouraging unnecessary action. Successful investing is usually much less exciting: define the goal, match the investment to its timeline, determine the allocation, rebalance periodically, and stay on course.
None of this is exciting. Rather this is the point. This is why it works.
Lisa Pallavi Barbora is a freelance writer and author of Money and Her
